Frictional Unemployment and the Role of Industrial Diversity

Curtis J. Simon

The Quarterly Journal of Economics, 1988, vol. 103, issue 4, 715-728

Abstract: Since many individuals are immobile between city labor markets in the short run, the industrial structure of cities plays an important role in determining the national rate of unemployment. This paper argues that a city's frictional unemployment rate will be lower, the more industrially diversified is the city; that is, the more evenly distributed is employment across industries. The empirical work on 91 large SMSAs strongly supports the hypothesis. The difference in frictional unemployment rates between the twenty most and least diverse cities is estimated at about 2.4 percentage points.

Date: 1988
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